Have We Found the Bottom? (And What Will the Recovery Mean to Brand Advertisers?)

According to the advertising execs polled for the , 29% of them expect to increase their advertising budgets over the next 6 months, versus only 26% who said that two months ago. Still, 29% also plan to decrease their budgets over that period, but that’s also down from 30% in the same survey back in March.

“Digital media such as online display, online search and mobile are the strongest, with more than half of all respondents anticipating a boost in those ad budgets, while traditional media such as TV, radio, outdoor, newspapers and magazines all are still mainly in negative territory. The traditional medium to show the greatest relative improvement has been cable and broadcast TV, as print media and radio continue to wane.”

Speaking of search, Hitwise numbers show that the total traffic going to website via paid search ads is decreasing relative to traffic via unpaid, organic search listings (via ).

Hitwise: Paid Search Losing Out to Organic Search

What’s this mean? It means that “direct response” marketing channels are peaking, as they say in . Marketers are buying as much guaranteed traffic as they can from Google, but users of search are becoming more likely (94.75% likely in May 2009, versus 90.16% likely in May 2008) to click on organic results over the paid search ads. Assuming Google’s PageRank algorithm is a fair proxy for relevance of one source of content — a brand — over another, marketers are facing an increasing need to earn relevance instead of buying it.

As we claw our way up from the bottom, expect that the recovery in online advertising will be driven by faster growth in brand-building activities over cost-per-click and other direct-response programs.

UPDATE: Comscore founder Gian Fulgoni says show that the percentage of clicks on paid search ads — the click-through rate — has not gone down (it’s stayed flat). Meanwhile, paid clicks are up only 18% over the past two years while search queries are up 68%. Among his explanations for the delta:

“search queries are actually getting longer and that as searchers become more experienced they are using more words per search query. And this apparently reduces the likelihood that an advertiser has bid to have his/her ad included in the results page from these longer queries, due to paid search advertising strategies that limit ad coverage, such as Exact Match, Negative Match, and bid management software campaign optimization.”

Comscore: Search Queries Get Longer

Longer queries, though, won’t make organic brand relevance any less important. If you’re McDonalds and web customers search for phrases such as “mcdonalds quarter pounder with cheese 94110,” McDonalds no longer needs to buy paid ads to reach that customer. But if longer queries look more like “healthy salad lunch options 94110,” it needs to make sure it is considered a relevant brand in that conversation.

  1. # James Hipkin said: May 15th, 2009 at 1:41 pm

    It’s nice to see that the data is starting to trend in a positive direction.

    I’m not sure DR is peaking. It’s finding its equalibrium versus demand creation.

    Marketers are finally getting over the fact that on online ad can be clicked on, even though 99%+ of them aren’t, and realizing that without demand creation demand fulfillment will plateau.

    I predict more emphasis and budget will be put into making online display ads function more effectively against demand creation objectives.

  2. # Chas said: May 15th, 2009 at 1:49 pm

    James–You put it perfectly,”without demand creation demand fulfillment will plateau.” I think your prediction is right.

  3. # John Battelle said: May 15th, 2009 at 1:54 pm

    Great analysis. You can only harvest so much, before you must sow again.

  4. # Joanne Lincoln Maly said: May 15th, 2009 at 2:28 pm

    Good analysis, Chas. I know the value of ppc ads as a veteran marketer, but as a consumer and high-usage internet ‘real’ person, I rarely click on any visible banner or sidebar ads. If there are more and more people like me out there, I worry that we might in fact be collectively moving us all toward a business model of ‘paid internet time’… or should I say regressing toward a model from the early days of home internet.

  5. # Online Advertising Australia » Blog Archive » As We Head Toward A More Conversational Interface, Can AdWords Keep Up? said: May 15th, 2009 at 2:32 pm

    [...] worth noting, my pal Chas’s analysis of what the decline in paid search means for brand advertising. Online/Internet Search [...]

  6. # Tunde said: May 15th, 2009 at 3:10 pm

    Should this really be about Direct Response(Search) VS. Display/Demand Creation? You have to understand your customer and non customer segments and where they are in the buying process. Don’t pick the media first. Really concentrate on the buyers and what they need to take the next desirable step. Yes, the buyers are online! and growing! Yes, you will need the right media mix to achieve success.

  7. # Chas said: May 15th, 2009 at 4:19 pm

    Tunde–Great point about the buying process. Too often internet marketers focus only on the very end of the buying process, the moment when we’re searching for a product name and have a credit card in hand. Brand preference and product decisions happen much earlier — often before we realize we’re looking to buy something. We read fashion and home decorating sites because we find them interesting, not because we view them as product catalogs. Yet that time we spend with Dwell, Uncrate, Inhabitat or NOTCOT is creating demand and informing our preference for styles, brands and products. Marketers that wait to give us their pitch until we’re entering products or brand names into search engines have missed their window.

  8. # Andrew Goodman said: May 19th, 2009 at 7:17 am

    Don’t worry. McDonald’s never did pay a dime to reach someone typing “mcdonald’s quarter pounder with cheese 94110″. So Google isn’t losing that budget.

    How much do you think McD’s has spent with Google to date? (I’m thinking, not much.)

    Cool that you mention McD’s and that it would be a good idea for them to buy salad terms. I’ve only heard that in one other place, and that was in my book, in 2005.

    Given that most ads we see for broad terms like “healthy salad” are still in direct response mode and few advertisers are using paid search in this way, it would appear there is room for growth on that front. From Google’s side, though, there appears to be a resistance to allowing broad advertising like this at a reasonable cost, as quality-based bidding might drive up CPC’s. Google’s stance may well be that Google Search isn’t the appropriate place to build broad awareness, but is it time for them to relax this stance?

    Until they do, companies will have to build larger, more elaborate resources to attract more visits on the organic side, whereas they could do it in paid search with only a couple of landing pages.

    Perhaps somewhere in the middle is the calls to action related to coupons and offers. Regardless, Quality Score’s still on the punitive side when user intent falls outside of typical direct response thinking. Although I’d like to think that means Google can easily up revenue by relaxing this in future, I think they run the risk of gaining a reputation for being too difficult to work with if they slapping Poor quality notations on too many keywords in too many large brand campaigns.

  9. # BlogLESS : Four Design Trends: June 11, 2009 said: June 11th, 2009 at 3:23 am

    [...] Edwards, chief revenue officer at Digg, offers this analysis of recent marketing [...]

  10. # Decky said: June 12th, 2009 at 1:20 am

    The AdWords Quality Score (QS) factor is really coming into play these days when advertisers have to be extremely careful regarding budget & spend management. What do you think?

  11. # As We Head Toward A More Conversational Interface, Can AdWords Keep Up? | rapid-DEV.net said: June 14th, 2009 at 11:10 pm

    [...] worth noting, my pal Chas’s analysis of what the decline in paid search means for brand [...]

  12. # As We Head Toward A More Conversational Interface, Can AdWords Keep Up? | rapid-DEV.net said: June 14th, 2009 at 11:10 pm

    [...] worth noting, my pal Chas’s analysis of what the decline in paid search means for brand [...]

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